The University of Cambridge is seeking to make cost savings after it announced it is on course to post a £30 million deficit this year.

In an email sent to about 150 departments on 19 March, vice-chancellor Stephen Toope explains how the university faces a “growing budget deficit” thanks to rising costs, the freeze of undergraduate tuition fees and a decline in quality-related research funding in real terms.

“The budget position is deteriorating rather than improving, as had previously been forecast, despite efforts to control spending over the last few years,” says Professor Toope, who has led Cambridge since October 2017.

He explains how the university’s finance team had just completed a 10-year budget projection in February, which, along with other projections, “confirmed that we are now running an annual cash operating deficit of roughly £30 million on a total combined…budget of £1.25 billion.”

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News that the UK’s richest university is likely to post a deficit is likely to highlight the precarious financial situation faced by other institutions ahead of the publication of the post-18 education review. The review, led by finance expert Philip Augar, is expected to report in May or June and is set to recommend that annual tuition fees in England are cut from £9,250 to £7,500.

In his email to departments, Professor Toope says that “a combination of modest requests for new funding from across the university, increases in projected costs, and a deterioration in some revenue lines boosted the forecast cash deficit to almost £55 million”, but this had since been cut to less than £36 million after work with heads of schools.

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“A deficit of this order – while manageable in the short term – is not sustainable in the longer term,” says Professor Toope, who says staff had “inherited a strong university with local, national and global influence”.

“It is our duty to make sure that we do at least as well in handing on to our successors. That will require financial discipline now,” he says.

Professor Toope adds that “across the world, universities face headwinds” including “increased political and economic uncertainty, with a growing possibility that financial markets will decline, reducing the income generated by the university and college endowments”. In the UK, this would be “exacerbated by the uncertainty posed by Brexit," he says.

“Depending upon its final form, there may be additional pressure on the finances of the UK government,” he continues, adding that “investments in higher education may be reduced or at least remain stagnant”.

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“If, as publicly mooted, the review of post-18 education and funding recommends a significant reduction in tuition fees, and if the government is not able or willing to make up for that reduction through other grants, the total income of the UK university sector would fall.”

On the savings plans, Professor Toope says that the “budget work will therefore not be simply an efficiency savings exercise”, saying that there “are legitimate demands for improvements in total compensation; we need to maintain strong pensions; we need to find ways to provide more affordable housing for staff”, he says.

“We must continue to attract the most talented people to Cambridge, especially in light of increased competition nationally (where other universities have been able to use teaching revenues to cross-subsidise research) and internationally (where significantly higher levels of philanthropy or government investment are available),” he says.

Cambridge’s various financial streams – including endowment income, philanthropic gifts and income from its university press – meant “budget pressures will be manageable”, he says, but the university “must still act now so that we do not dig ourselves into a hole, and put the onus on future generations to solve a much bigger problem”.

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jack.grove@timeshighereducation.com